There’s an episode of “The Office” where regional manager Michael Scott learns that he has a budget surplus of $4,300. His accountant Oscar explains if he doesn’t spend it, it will go to waste and corporate will cut the office’s budget by $4,300 next year.
To help the dimwitted Michael understand budgeting, Oscar compares it to a kid whose parents have given him $10 to run a lemonade stand that only actually costs $9.
“So what you want to do is spend that dollar on something now, so that your parents think that it costs $10 to run the lemonade stand.”
And thus we see how quickly budgets can become wasteful.
Whether it’s a lemonade stand, a mid-sized regional paper-supply company or a large-scale government entitlement program, waste is a problem. Individuals and privately owned companies have incentives to save money — because it’s their money — in a way that government entities don’t: because it’s not really their money.
No one likes government waste (except the people who benefit from it), but even the most ardent budget-hawk acknowledges some waste is probably inevitable. It’s important to avoid needless cynicism or imply that all government spending is wasteful or that every bridge leads to nowhere. We need the government, we need bridges, but no system is perfect.
Recognizing that, the question then becomes how do you minimize waste? If some are incentivized to waste taxpayer dollars, how do you equally incentivize others to save it?
This is a particularly important question for Medicare, one of the largest, and therefore most potentially wasteful, programs in America. At $540 billion (15 percent of the federal budget), we spend almost as much money on Medicare as we do our entire national defense (16 percent). Medicare costs almost as much as all of our war fighters’ salaries, aircraft carriers and everything else to protect us combined.
Recognizing how important it is to keep Medicare honest, the Bush administration enacted the Recovery Audit Contractor (RAC) program, which pays private auditors a portion of fraudulently paid funds they recover for taxpayers. A similar thing happens in the above-mentioned episode of “The Office”: Michael learns that branch managers get a 15 percent bonus for coming in under budget ($645, which he decides to spend at Burlington Coat Factory).
RAC auditors operate under a similar incentive program to identify and recover improper Medicare payments paid to health care providers in the byzantine jungle of fee-for-service (FFS) Medicare plans.
These auditors have proven remarkably effective.
After its initial three-year pilot program from 2005 to 2008, RACs corrected more than $1 billion in improper Medicare payments, according to the Centers for Medicare and Medicaid Services (CMS). About 96 percent of those were overpayments, where hospitals took too much money from the government, while only 4 percent were underpayments.
Most of those overpayments (85 percent) were collected from inpatient hospital providers whose claims don’t comply with Medicare’s coding or medical necessity policies.
Even after subtracting refunds, appealed overpayments, and auditor fees, the RAC system still returned $693.6 million to the Medicare Trust Funds by 2008. The program has grown successfully, saving about $10 billion in total, $2.57 billion of that in 2014 alone,according to the CMS.
Despite its initial successes, not everyone loves RACs: hospitals hate it because they want to be able to bill whatever they want, and RACs force them to be accountable. Corporate hospital entities want as few audits as possible and gum up the system with flagrant appeals. Last year, a top Obama official revealed that just five companies had filed more than half of all appeals.
Bending to the will of lobbyists from these and other hospital chains, the Obama administration is seeking to euthanize the RAC program, despite the fact that wasteful overpayments have boomed under his watch.
One measure to stymie auditors: the administration recently ruled that only one in every 200 payments to hospitals can be reviewed, so even flagrant violators have only a 0.5 percent chance of ever even being detected. (Note that private health insurers require as much as 100 percent claim review for billing accuracy.)
This is obviously no way to balance the budget and protect the Medicare program.
Fighting to preserve the RAC program is Utah’s own Sen. Orrin Hatch, who has been a leader on conservative solutions to federal health problems since he became chairman of the Senate Health Committee in his first term.
Hatch is currently sponsoring a bill to protect the RAC system: the Audit & Appeal Fairness, Integrity, and Reforms in Medicare (AFIRM) Act (S. 2368), which would make desperately needed reforms to the Medicare appeals process and bring enhanced transparency to the Medicare audit process. Hatch’s partners on the bipartisan solution are Sen. Richard Burr (R-North Carolina) and Sen. Ron Wyden (D-Oregon).
Wyden, incidentally, has long been a champion of government health care solutions that many conservatives disagree with. He was one of the lead sponsors on the Affordable Care Act (Obamacare), so if he and Orrin Hatch agree on a budget issue, they bring a lot of credibility to the table.
If given free rein, some estimate RACs could annually recover $120 billion in lost Medicare funding.
Even for Washington, that’s a lot of money. With the deficit sitting this year at $534 billion, RACs could cut that by one-fourth.
Saving money on Medicare, which is then reinvested in the program, is vital to its continuing health. The Medicare trustees have announced that, under current spending levels, the program will be bankrupt by 2028.
There’s a lot more at stake than $645 for a new coat or an extra dollar for lemonade. The more money Medicare saves now, the more it has for the future. Correcting overpayments today will save lives tomorrow.